Dec. 4 (Bloomberg) — Apple Inc., maker of the iPod player and iTunes music software, is in talks to acquire online music service Lala, according to two people familiar with the matter.

The terms of the deal weren’t known. The people declined to be identified because talks are still in progress. Investors in Palo Alto, California-based Lala include New York-based Warner Music Group Corp., Boston-based Bain Capital Ventures and Ignition Partners in Bellevue, Washington.

The Lala service lets users listen to any song on its site once for free. Customers can then opt to buy the track for 10 cents and listen to it on the Web. The service differs from iTunes because the music is stored on servers via so-called cloud computing, instead of being downloaded to the user’s computer. If customers decide to download a track, the cost is 79 cents — compared with iTunes’ price of 69 cents to $1.29.

“There’s a big question in the industry about what will be the dominant way people will obtain music, whether it’s stored in the cloud or whether it will be on a hard drive,” said Larry Kenswil, an attorney at Loeb & Loeb in Los Angeles, who was the former head of Universal Music Group’s digital unit. “Apple is wise to cover its bases because it’s only in the download business.”

Record Labels

Lala, which is privately held, offers access to more than 8 million songs, including tracks from EMI Music, Warner Music, Sony BMG Music Entertainment and Universal Music Group.

When Google Inc. added a feature in October to let users listen to songs and purchase them, it turned to Lala as a partner. That feature, called One Box for music, also relies on a music service called ILike, which is owned by News Corp.’s MySpace.

Facebook Inc., the world’s largest social network, introduced a service in October that allows users to buy music for their friends through Lala.

Apple offers more than 11 million songs through the iTunes store, which it opened in April 2003. ITunes now operates in 23 countries. The company says it is the world’s largest music retailer, with 8.5 billion songs sold.

An acquisition of Lala may signal that Apple is more interested in creating a subscription service, Kenswil said.
Two Options

“Maybe they are ready to do that,” he said. “The Lala model is somewhere between the two,” Kenswil said, since it offers an online service and also lets users keep songs permanently on their hard drives.

Lala was started by Seven Networks Inc. founder Bill Nguyen to let people trade compact discs via the mail. Nguyen also founded Onebox, which was acquired by Openwave Systems Inc. in 2000 for $513.5 million. Lala Chief Executive Officer Geoff Ralston was vice president of engineering at Yahoo! Inc. The current version of Lala debuted last year.

Apple, based in Cupertino, California, fell $3.16, or 1.6 percent, to $193.32 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have more than doubled this year.

Lala would be at least the second digital-music startup acquired since August. MySpace acquired ILike in August.